Matrix, Incorporated, acquired 25% of Neo Enterprises for $2,000,000 on January 1, 2024. The fair value and book value of 25% of Neo's identifiable net assets was $2,000,000 and $1,600,000 on that date, and the difference was attributable to assets that would be depreciated over 10 years. During 2024 Neo recognized net income of $500,000 and paid dividends of $400,000. Neo had a total fair value of $10,000,000 as of December 31, 2024. Required: 1. Record adjustment to FV on December 31, 2024 (Equity method). 2. Record proportionate share of investee's net income on December 31, 2024 (FV method). 3. Record related investment income adjustments on December 31, 2024 (FV method).
Matrix, Incorporated, acquired 25% of Neo Enterprises for $2,000,000 on January 1, 2024. The fair value and book value of 25% of Neo's identifiable net assets was $2,000,000 and $1,600,000 on that date, and the difference was attributable to assets that would be depreciated over 10 years. During 2024 Neo recognized net income of $500,000 and paid dividends of $400,000. Neo had a total fair value of $10,000,000 as of December 31, 2024. Required: 1. Record adjustment to FV on December 31, 2024 (Equity method). 2. Record proportionate share of investee's net income on December 31, 2024 (FV method). 3. Record related investment income adjustments on December 31, 2024 (FV method).
Chapter7: Corporations: Reorganizations
Section: Chapter Questions
Problem 42P
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Step 1: Explain Equity method:
VIEWStep 2: 1. Record adjustment to FV on December 31, 2024 by Equity method as follows:
VIEWStep 3: 2. Record proportionate share of investee's net income by FV method as follows:
VIEWStep 4: 3. Record related investment income adjustment on December 31, 2024 by FV method as follows:
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